There’s a price to be paid for raising the minimum wage. At one local Mexican food chain, it’s 14 cents a taco.
Businesses and nonprofit groups have been adjusting to the state’s new $10 minimum wage since it superseded the old minimum wage of $9 an hour on Jan. 1. Some have raised prices or fees. Others have cut back hours. And many are thinking about the increases still to come.
Last year, city leaders in Sacramento approved a gradual increase in the minimum wage to $12.50 an hour by 2020, joining a number of state and local governments around the nation that have decided the federal minimum wage of $7.25 isn’t nearly enough.
While the increase will help struggling workers, businesses and their customers will ultimately have to pay for it.
“I’ve spent a lot of time crunching the numbers. I think it’s something that we’ll all have to deal with when the time comes,” Lisandro “Chando” Madrigal, owner of Chando’s Tacos, said after he announced to customers that his three restaurants’ prices would increase by an average of 7 percent, largely due to the higher minimum wage.
For instance, the price of a taco went from $1.85 to $1.99, and the cost of nachos jumped from $6.99 to $7.49, Madrigal said.
“I regret that (the) rapidly rising costs of goods and the wage increase necessitate our raising the price of our products effective January 14, 2016,” Madrigal posted on Facebook and Twitter. “I have made every attempt to avoid the increase, but I refuse to compromise on quality and experience. This is our only recourse.”
Jeffrey Michael, director of the Center for Business and Policy Research at the University of the Pacific in Stockton, said he’s not surprised. Michael said other restaurant owners will likely find themselves in a similar predicament. The food-service sector, with its thin profit margins and heavy reliance on low-wage workers, is affected more than other industries by incremental wage hikes and often passes on those costs to consumers.
“It’s not a free lunch. Somebody has to pay,” Michael said.
On the flip side, he said, low-wage workers are more likely to spend money out of necessity rather than saving it, so an increased minimum wage “can push dollars back to the local economy and have offsetting effects.”
“Maybe it will cost people like me, who go out for a quick-serve lunch,” Michael said. “But it will put a little more money in the pockets of the people providing that service to me.”
At the Chando’s Tacos location on Arden Way, cashier Martha Camarena said she’s already feeling the benefits. As a single mother earning $9 an hour, she said she could hardly afford more than her rent, bills and babysitter.
“I was taking home $600 or $700 every two weeks,” she said. “You can’t live on that.”
Tips helped her get by, she said.
Last year Camarena started making $10 an hour after Madrigal gave her a merit-based raise. The extra dollar per hour made it possible for her to buy a safer, more reliable car to get to work and to take her young daughter to preschool.
When the new wage hike took effect this month, Madrigal upped Camarena’s pay to $11 an hour so she was still making $1 more than minimum wage. Madrigal said nearly all of his 70 employees got a raise in response to the minimum-wage hike, even if they weren’t making base pay.
The state’s move to boost the minimum wage by a dollar adds about $2,000 annually to a full-time worker’s gross income. Raising the minimum wage to $12.50 would add another $5,000 to the same worker’s annual pay. Once the local wage hikes are fully implemented in 2020, a full-time minimum-wage employee will be making $25,000 at $12.50 an hour instead of $18,000 at $9 an hour.
That could result in hundreds of millions of dollars more flowing into local workers’ pockets.
A study published last year by the UC Berkeley Center for Labor Education and Research found that more than a third of the city of Sacramento’s workforce will benefit from the increases in the minimum wage. About 78,000 people earning minimum wage would benefit directly, and 14,000 who earn slightly higher wages would get pay bumps from a “ripple effect,” the study concluded.
The Berkeley study found that more than three-quarters of minimum-wage earners and near-minimum-wage earners in the city of Sacramento are in their 20s, 30s and 40s, and more than half have attended college, the report said. The figures run contrary to the notion that most minimum-wage earners are teenagers with part-time jobs, it said.
Many affected workers are primary breadwinners for their families. However, basic wages add up to only a fraction of the sum needed to support a family in the Sacramento region, according to the Massachusetts Institute of Technology’s Living Wage Calculator.
In the greater Sacramento region, a single adult working full time needs to earn $11.29 an hour just to get by, it says. That assumes rent of $720 a month and a food budget of less than $10 a day, along with basic medical and transportation costs. Add one child to a single-parent household, and the living wage more than doubles, largely due to more than $7,000 a year in child care costs.
In a household with two working adults and two children, each adult would need to earn about $15 an hour to make ends meet, according to the MIT calculator.
Living-wage advocates have been pushing for a $15 minimum nationwide. In Sacramento, the local Democratic Party has joined with two workers’ rights groups to propose a ballot measure that would hike Sacramento’s minimum wage to $15 an hour by 2020. Some states, counties and cities, including San Francisco and Los Angeles, have passed ordinances that would gradually increase their minimum wages to that level.
At least one presidential candidate is pushing for a national change.
“The current federal minimum wage ($7.25 an hour) is starvation pay and must become a living wage. We must increase it to $15 an hour over the next several years,” Vermont Sen. Bernie Sanders argues on his website.
Republican candidates, including Donald Trump, have said a wage hike would eliminate jobs. Locally, some business leaders voiced that same sentiment.
“A number of our members are cutting back on hours and shifts (because of the recent state wage increase). You can’t afford to have idle time,” Peter Tateishi, president and CEO of the Sacramento Metro Chamber, said in a recent interview.
He noted that in other parts of the country, fast-food chains are experimenting with touch screens to replace counter employees.
Jim Relles, owner of Relles Florist on J Street in midtown Sacramento, said he raised some of his delivery prices Jan. 1 in response to the state’s minimum-wage increase. He said he’s more concerned about the graduated pay increases the Sacramento City Council approved last October.
“We can absorb a little bit, but these increments to 2020 are going to have a more detrimental effect,” Relles said. “It affects not just the minimum wage, but workers’ comp, which is tied to wages. How far can prices go up before there’s a customer pushback?”
Even some nonprofits are feeling pinched.
The Sacramento Central YMCA is closing its pool an hour earlier each day during non-summer months “as a direct result of the recent minimum wage increase,” Patrick Maridon, the YMCA’s aquatics director, wrote in a Dec. 29 letter to members. “This was a difficult but necessary decision and the only feasible way to offset the wage increase without compromising safety or quality.”
Other businesses have decided simply to absorb the costs.
Eric Schnetz, CEO and corporate chef of Folsom-based West of Chicago Restaurants Inc., which oversees five Chicago Fire pizza restaurants in the Sacramento area, said the $1 wage bump in 2016 represents an increase of about $120,000 on his company’s annual payroll. Schentz said he decided to absorb the new payroll costs for now, in part because food costs are down.
“Business is pulling strongly, and I do not want to do anything that may jeopardize our momentum,” he said. “Should food costs increase, we will raise our menu prices.”
Raising prices a bit won’t necessarily hurt business, however. At several Chando’s outlets, for instance, customers overwhelmingly said they didn’t mind paying a little more for the small chain’s lauded tacos and burritos.
Standing in line at Chando’s Power Inn Road location, Sacramentan Mary Kohl said, “It’s worth it. The food is that good. … Besides, everybody has to make a living. If I have to pay a little more for his (employees) to make a decent wage, I don’t think that’s a bad thing.”